Coal news and updates

Coal auctions are a win-win for state governments and end consumers

The government is expected to raise more than 15 lakh crore from coal auctions, with over Rs 2 lakh crore already in the kitty from the current round. The money received will be split between the states and the centre and will accrue steadily over a period of 30 years, depending on the life of the mine. There are however, certain questions that arise as the bids are in progress. How much is the states’ share in this amount and how will they be getting the money. Also, after bidding at such aggressive rates, how will the consuming industry be impacted?

With nearly 32 mines out of the 204 mines up for auction, the figure to be collected has already crossed the Rs 2 lakh crore mark. Coal Minister Piyush Goyal has repeatedly said that the coal producing states like Odisha, Jharkhand, West Bengal and Chattisgarh would be the biggest beneficiaries of the auctions. A study done by SBI’s EcoWrap, as reported by DNA, said that total payment to the states over the next 30 years would be Rs 4 lakh crore with an equal amount to flow in regularly through royalty payment.

SBI in its report had said that as per the auction process, the money raised from these auctions will go entirely to the state governments where the mines are located.

In the case of coal for power sector, which was done through a reverse auction basis, Coal Secretary Anil Swarup said that Madhya Pradesh will get Rs 39,900 crore, Chhattisgarh Rs 26,425 crore, Jharkhand Rs 14,498 crore, West Bengal Rs 13,210 crore, Maharashtra Rs 1,819 crore and Odisha Rs 607 crore.

While the states will get a sizeable share of the revenue, what will be the impact on the companies who have been bidding aggressively? Edelweiss in their report on coal auctions have said that while the objective for the power sector bidders were to mainly achieve fuel security and retain the mines, the benchmark for non-power sector bids seem to be landed cost of imported coal.

As long as fuel cost is lower than the landed cost of imported fuel, non-power sector producers can expect to remain profitable. Further, the companies who have won the bids will be sheltered from future increase in international price of fuel. In case fuel prices crash below their bid price, the option of importing fuel is always open.

For the power sector, the reverse auction method used by the government will ensure that there will be saving in power tariff to the extent of over Rs 96,000 crore to the consumers, according to the coal secretary.

While everything looks hunky dory for coal auctions, there are certain operational issues that need to be monitored. The process of handing over the mines to the successful allottees is still being worked out. Coal ministry officials accompanied by the successful allottees are meeting chief secretaries of the coal bearing states to ensure smooth handover and transfer of rights and titles.

But there is a bigger issue between the states and the centre that needs to be tackled. The point of concern is how the money will be distributed between the states and the centre. It is not yet clear who will be the custodian of the Rs 2 lakh crore and how will it be distributed to the states. A Business Line report says that during deliberations of the Select Committee on the Coal Mines (Special Provisions) Bill, 2015, opposition MPs repeatedly asked the Centre to spell out how it plans to distribute the money to the States. The Select Committee has been working on a priority basis since March 13 to submit its report by March 18.

Members of the Select Committee want the Government to take the views of all the States involved before suggesting a framework for allotment of the money to the host States. In its present form, the Bill does not sufficiently address the concerns raised by several States.

source: http://www.business-standard.com